The Philippine Competition Commission (PCC) has issued its first merger clearance under the Philippine Competition Act, deciding that Sanofi’s proposed acquisition of Boehringer Ingelheim’s consumer healthcare (CHC) business would protect fair market competition in the country.
This is part of a global transaction, expected to complete by end of the year, which will see both companies exchange assets. Sanofi will get Boehringer Ingelheim’s CHC business, which has an enterprise value of €6.7 billion ($7.3 billion), and Merial, Sanofi’s animal health business, , which has an enterprise value of €4.7 billion ($5.1 billion), will go the other way.
Competition and antitrust are set to increase in importance in South East Asia, as more and more jurisdictions in the region develop relevant laws and implementation rules.
Businesses and law firms involved in M&A in the Philippines have been anticipating how the merger clearance rules will play out. The Philippine Competition Act, which took effect on August 8, 2015, was followed by the PCC’s creation last February, and the completion of the implementing rules and regulations that go along with the Act. Under the Act, which aims to protect fair market competition, the PCC can review proposed mergers and acquisitions and can prohibit transactions that it finds will substantially prevent, restrict or lessen competition in the market. Transactions that are more than the Php1 billion ($20.7 million) threshold may not complete the transaction until 30 days after the PCC has confirmed a notification has been completed in accordance with the Act. Failure to comply with the notification requirement can result in the transaction being void and the parties can be penalised with an administrative fine equivalent to 1% to 5% of the transaction value.
While both Sanofi and Boehringer Ingelheim are in the pharmaceutical industry, the PCC cleared the proposed acquisition since it determined there will only be an incremental market share increase in the relevant product market; that the sector also consists of a significant competitor with a large market share and a number of other competitors with smaller market shares which can impose competitive constraints on Sanofi and that none of the products included in the proposed acquisition are direct substitutes of each other.
Time of change
“The implementation rules only came in June this year, so we are in a period of transition,” says Arlene Maneja, partner at SyCip Salazar Hernandez & Gatmaitan which acted as Philippine antitrust counsel to Sanofi and made the merger control filing. “The deal came June 18 and we made the filing June 22, so we only had a number of days to comply with the new merger clearance forms.”
“In terms of the extra information required, we had to include the many businesses Sanofi has, its competitors and top suppliers,” says Franco Larcina, Maneja’s fellow partner at SyCip Salazar Hernandez & Gatmaitan.
“Foreign law firms we worked with have told us that the need to file the notification before the signing of the deal is quite unique to the Philippines,” says Maneja. “Other jurisdictions make their filings after the definitive agreement is signed, so we had to act extra fast since this was a global transaction.”
Eye on threshold
Entities planning for M&A in the Philippines need to be conscious of the Php1 billion threshold that triggers notification. “The figure includes the value of assets and the value of turnover, so even though some businesses may not be present in the Philippines, its trading parties’ exports and imports could be included in the turnover and trigger the threshold,” says Maneja.
Other law firms involved in the transaction included ACCRALAW, which advised Boehringer Ingelheim, and Linklaters, which acted as foreign counsel for Sanofi.
“The PCC has thrown a wide net to understand businesses and is working to arrive at its own conclusion and analysis on competition,” says Larcina. “But it is a very professional body that is open to suggestions to be more reasonable. This is new to everyone and there is clear recognition that there is a need to discuss and collaborate on deciding what is acceptable.”
As the relatively green PCC develops its experience in working with industry on transactions and establish itself as an independent regulator against market dominant behaviour, and anti-competitive transactions and agreements, the Philippines may even set an example for other countries in the ASEAN that are developing their own competition laws.